Floor 3: Imbalance
What is a fair value gap (FVG)?
A fair value gap (FVG) is a three-candle pattern where the wicks of the first and third candles do not overlap, leaving a price range that only the middle candle traded through. A bullish gap runs from the first candle high to the third candle low. SMC traders read it as an imbalance price may revisit.
How to spot it
Most of the time, neighbouring candles overlap: each one retraces part of the one before, so every price is traded more than once. A fair value gap is where that overlap is missing. One candle moves so far, so fast, that the candle before it and the candle after it do not share any prices. Between them is a band that price crossed exactly once, in one direction.
Call the three candles a, b and c. In a bullish gap, candle b is a strong up candle and the low of candle c is above the high of candle a. The gap is the space between those two wicks: bottom at the high of a, top at the low of c. In a bearish gap, b is a strong down candle and the high of c is below the low of a: top at the low of a, bottom at the high of c.
The bounds are measured wick to wick, and that is where most marking errors come from. The gap is not the body of the middle candle, and not the distance between closes. It is only the strip that neither outer candle touched. If the two wicks meet at the same price, there is no strip and no gap.
The rule ForexLens uses
The rule ForexLens uses: for three consecutive candles a, b, c, there is a bullish FVG when the low of c is strictly above the high of a (the gap runs from the high of a up to the low of c), and a bearish FVG when the high of c is strictly below the low of a (from the low of a down to the high of c). Touching wicks are not a gap. A gap is mitigated when a later wick reaches its near edge.
Step by step
- Find a large candle that moved decisively in one direction. This is candle b.
- Take the candle before it (a) and the candle after it (c).
- For an up move, compare the high of a with the low of c. If the low of c is higher, the space between them is a bullish gap.
- For a down move, compare the low of a with the high of c. If the high of c is lower, the space between them is a bearish gap.
- Draw the box from wick to wick, across candles a to c, and extend it to the right.
- Mark it as mitigated at the first later candle whose wick trades back into the near edge.
Why SMC traders care about the gap
The name carries the theory. The idea is that during candle b, orders on one side overwhelmed the other so completely that trading was one-sided through that band: buyers lifted every offer and nobody had the chance to sell there, or the reverse. Price is said to have left "fair value" behind, and SMC traders expect it to come back and trade through the band again before continuing.
That is why a gap is used as a place to look for an entry in the direction of the move that created it. After a bullish displacement that breaks structure, a trader using the entry model waits for price to dip back into the gap, often expecting a reaction at its near edge or its midpoint, and places a stop beyond the far side of the move.
Terms you will see around FVGs
- Imbalance: a general word for the same thing. Some teachers use it for any one-sided move, others as a synonym for FVG.
- Mitigated or filled: price has come back into the gap. On ForexLens, mitigated means a wick reached the near edge; filled means price traded through the whole gap.
- Consequent encroachment: the midpoint of the gap, used by some traders as a finer entry level.
- Inverse FVG: a gap that price has closed through and that is then watched from the other side, in the same spirit as a breaker block.
- Liquidity void: a longer stretch of one-sided candles, effectively several gaps in a row.
Worked example
The simulated chart below contains one planted fair value gap. Before opening the Lens, find the fastest candle on the chart and check its two neighbours. Read the high of the candle before and the low of the candle after (or the low and the high, for a down move), and decide whether there is daylight between them.
The Lens draws the gap as a box from wick to wick. The generated walk-through gives the two prices that bound it and its height in pips. If your box was taller than the one the Lens draws, you probably measured from a body or included a wick that belongs to candle a or c; the box must stop exactly at those wicks.
GBP/USD, 15-minute candles, simulated
Reading the chart, step by step
- Candle 11 is the fast one. Its neighbours are candle 10 and candle 12.
- Candle 10 has a high of 1.28277. Candle 12 has a low of 1.28466. The low is above the high, so the two wicks do not overlap.
- The fair value gap is the strip between them: 1.28277 to 1.28466, which is 18.9 pips, measured wick to wick.
- No later candle on this chart trades back into it, so the gap is still unmitigated.
These numbers come from the generated chart above. Change the seed and the prices change; the rule does not.
Takeaway: A fair value gap is the strip between the first and third wicks of a three-candle move, and its edges are exact prices, not an area you estimate.
Common mistakes
- Measuring from bodies. The gap runs wick to wick: the high of the first candle to the low of the third, or the mirror. Using opens and closes makes the box too large and puts the edges at prices that were in fact traded twice.
- Marking a gap where the wicks touch. If the third candle low equals the first candle high, there is no untraded strip. Touching is not a gap.
- Treating every gap as an entry. On a low timeframe, gaps appear constantly. SMC traders give weight to those created by displacement that also breaks structure, in the direction of the higher timeframe. A gap alone is only a description of three candles.
- Assuming it must fill. Many gaps are revisited and many are not. Price can leave a gap behind for good, or run straight through it. "It always fills" is not a rule, it is a slogan.
Does it work? An honest note
The pattern itself is a plain fact about three candles, and the description is fair: a gap marks a spot where price moved quickly with little two-way trade on that timeframe. Pullbacks into the origin of a fast move are also common, for the ordinary reason that markets retrace.
The stronger claims are not established. There is no public, independent evidence that fair value gaps as SMC defines them predict where price will turn better than chance after costs. "Fair value" is a borrowed phrase: nothing in the pattern measures value. Gaps are also an artefact of the timeframe. A gap on a five-minute chart usually vanishes on the one-minute chart, where the same prices were traded in sequence. And in spot forex, where there is no central tape, one-sided candles often reflect a thin moment or a news release rather than a hidden institution.
The honest position: an FVG is a precise and useful way to mark the origin of a fast move, and a reasonable place to define risk. It is not a law that price must return, and it is not a signal. Test it on your own charts with fixed rules before trusting it, and read the evidence and the criticisms. Most retail traders lose money.
Questions people ask
How do you identify a fair value gap?
Look for three consecutive candles where the middle one is large. For a bullish gap, the low of the third candle must be above the high of the first. For a bearish gap, the high of the third must be below the low of the first. The gap is the space between those two wicks.
Do fair value gaps always get filled?
No. Many are revisited, which is unsurprising because price retraces often, and many are never touched again or are run straight through. Nobody has published reliable figures for how often gaps fill under a fixed definition, and the answer would vary with timeframe and market. Treat "price always fills the gap" as a saying, not a fact.
What is the difference between a fair value gap and an order block?
They mark different parts of the same move. An order block is a single candle: the last opposite-colour candle before a strong move. A fair value gap is the untraded strip inside the strong move itself, between the wicks of the first and third candles. The gap usually sits just beyond the order block, and traders often watch both.
What timeframe is best for fair value gaps?
There is no best one. Higher timeframe gaps are fewer and are watched by more traders; lower timeframe gaps are frequent and often meaningless. A common approach is to find a gap on a higher timeframe for context and use a lower timeframe gap inside it for precision. See multi-timeframe alignment.
Is an imbalance the same as a fair value gap?
Usually, yes. Most SMC traders use the two words for the same three-candle pattern. Some use imbalance more loosely for any strongly one-sided move, including gaps where the wicks overlap slightly, while keeping fair value gap for the strict wick-to-wick case. When in doubt, ask which rule is being applied.
Practise it
Reading about a rule is not the same as applying it. These games generate a fresh chart each round, ask you to find it first, and grade you against the same rule.
FVG Hunter
Drag a box onto the three-candle gap. Graded on the exact wick-to-wick bounds.
Displacement Meter
Rate the move: displacement or noise? Body size against the recent range, gaps left behind.